Tax Reform 1969: Moving Forward Confidently

SUMMARY: In 1969, routine Congressional hearings on tax reform degenerated into naked attacks on America’s largest foundations for their support of progressive policy change. For many years after, foundations were too intimidated to engage in such overtly political activity. But is that what really happened? This issue of Foundation Watch looks back on the events of 1969, to try to separate fact from fiction.

Pundits Weigh In

One of the more detailed (and entertaining) accounts of the 1969 tax code hearings appears in the 1971 book The Money Givers by Joseph C. Goulden. In the closing paragraphs of the book, Goulden focuses on what he thinks should have been the key issue in the hearings: “In sum, what the rich do with their money in private is their own business. But once they claim the privilege of tax-exemption, each of us acquires an interest in the dollars involved, and we deserve to know how and why they are being spent.”

Goulden’s suggestions for improving foundation disclosure hinge on imposing a radical transparency on them, including this one: “Open the foundations’ board meetings to the public, and bar the trustees from gathering privately ahead of time to decide what they are going to do. No one would come to most of the meetings, but I’d be curious as to how Ford decides to spend [its annual budget] . . . . Most of us would quickly be bored silly and go away, but the foundations would operate in the constant knowledge that someone could ask at any minute: ‘What have you done for America recently?’”

In a similarly pointed 1972 essay entitled “Foundations and Social Activism: What Do Foundations Do?” Dartmouth professor Jeffrey Hart asked:

“What interest do the foundations represent? What, indeed, is a foundation but a large amount of money presided over by a small number of executives, individuals largely unknown outside their own circle, whose opinions and goals are themselves largely unknown.”

He continued:

The deep issue concerns the role of the larger foundations as a kind of shadow government, disposing of substantial political and social power, and using that power in ways that are in fact highly questionable. Though the foundations to an increasing degree are acting as a political force, and though they make no bones about their desire to act as a political force, they are not responsible to any electorate and so cannot be voted out of office if their political policies are perceived as undesirable.

This captures, in a way that other foundation critics at that time including Wright Patman were not quite able to express, perhaps the most potent criticism of the large foundation leadership: who guards these self-appointed guards, these self-declared arbiters of progress who are able to exercise considerable power without much formal accountability?

In the Fullness of Time

In 1998, Alan Pifer completed an oral history interview, looking back on his time with Carnegie (from which he had long since retired). The interview was subsequently published by Columbia University. Asked directly about the effects of the 1969 tax reform and its implication for foundations, Pifer surprisingly stated:

[O]riginally I felt that it was unfortunate that it had caused a wave of caution, conservatism in foundations, and I think that was true for a while. Of course, I’ve been out of foundations, or direct involvement with foundations now for sixteen years as I retired in 1982.… I think it would be hard for me to claim that we are now, as a field, foundations as a field, are suffering from the continued effects of the Tax Reform Act. I think it is just gone on developing and that on the whole a lot of very fine grants are being made that do push the whole question of the role of foundations out farther in some very important directions.

Pifer also used the interview to settle a score with McGeorge Bundy, whom he says was a prime instigator of Congress’s scrutiny. “[M]uch of this [Congressional scrutiny] really revolved around Bundy and his arrogance, and the role of the Ford Foundation under Bundy’s leadership,” Pifer stated.

Pifer called Bundy:

…a person of enormous self-confidence. The funny thing is, we had been at school together [NB: a reference to Groton, the boarding school both men attended]. I had known him for years. He was a little ahead of me, although in age only a year or two older, maybe two years. But anyway, we had known each other for a long time. He sort of looked on me as a little boy. [Laughter] And would never listen to anything I said. And having got us in all this trouble, he would not admit that he had caused the trouble. He just absolutely couldn’t…

Asked to comment on his opposition to the plan to set lifespans for foundations, Pifer answered:

Well I thought that this was a kind of dagger aimed at the very heart of the foundation field…because, in effect it was, well, it was more than just rapping our knuckles, it was saying there’s something wrong with you, meaning foundations, we can’t really trust you so we’ve got to be sure to put you out of business at some point in the future. You’ve got too much power, you’re irresponsible, things of that kind.

All of that was sort of implied, it was a black mark, and I felt that even if it could be changed it would still in a sense remain as a black mark that the Congress of the United States had had to do this, and therefore we should fight it. We didn’t deserve that stiff a penalty if in fact we had really done anything wrong. And of course, a vast majority of foundations did not feel they had done anything wrong and were rather appalled at finding themselves lumped together with a few foundations that were doing things that were, well, they were at least on the margins of—and, of course, especially the Ford Foundation…

Alongside Pifer’s personal views, we can compare the official view of the tax hearings and their influence as presented in an “official history” released by the Rockefeller Foundation.

In 2013, the foundation published a book entitled Democracy & Philanthropy: The Rockefeller Foundation and the American Experiment, which includes a lengthy look at the 1969 hearings. The skepticism initially expressed by George Harrar had given way to a more accepting view of the hearings:

If it did nothing else, the Tax Reform Act of 1969 helped to restore Congressional confidence that the great private wealth held by private foundations would indeed be used for charitable purposes. It also brought to the forefront the debate over the role of philanthropy in a new era in the nation’s history, an era in which the federal government played a large part in the day-to-day business of the nation.

With this expansion, philanthropy had to redefine or at least reassess its role and function in society. It had to be more accountable to the public.

This Rockefeller summary might better be called the “Congress-has-had-its-say-now-leave-us-alone” school of historical interpretation.

Conclusion

The events around the 1969 tax hearings have sunk largely out of sight, even if they live on in government regulations on foundations. Various academic interpretations remain, such as Professor Stanley Katz’s view cited in the opening passage of this article. Indeed, from the evidence reviewed above, it’s hard to accept the argument that 1969 represents a traumatic moment for the major U.S. foundations. They themselves no longer take such a draconian view of events. With the passage of time, the 1969 hearings appear to have been little more than a speed bump on the road to progressivism, around which foundations have successfully navigated.

Hindsight also makes it impossible to share Prof. Katz’s view that the 1969 tax hearings somehow cowed the leadership of the major U.S. foundations, preventing them from pursuing their respective brands of “social change.”

As a rebuttal to what Katz calls the foundations’ avoidance of “taking strong positions on matters of political contention” after the hearings, let’s recall the activities of just one foundation. The Edna McConnell Clark Foundation in the early 1970s began funding the “public interest” litigation effort that resulted in the formal de-institutionalization of tens of thousands of mentally-ill individuals across America. (See: “Edna McConnell Clark Foundation: Administering ‘strong shocks’ to U.S. society and the mentally ill,” Foundation Watch, September 2013.)

If funding for such a goal doesn’t represent taking a strong position “on matters of political contention”—then what does?

As the 50th anniversary of the tax reform hearings approaches, a reassessment is at hand. Perhaps the version of the hearing’s achievements that resonates now is, in President Nixon’s words, that they expressed “a deep and wholly legitimate concern about the role of foundations in our national life.”

Labor union bosses, executives of big banks, even the founder of Facebook—powerful figures of all kinds—are routinely reminded that, even with vast resources at their disposal, they are also subject to democratic checks and balances: They can be called to testify in Congressional committee hearings and respond to hard questions. The heads of the largest foundations, with all the power their grant-making ability gives them, shouldn’t be treated any differently. To ask them to participate in a Congressional hearing is not evidence of a shameful “backlash”—that’s just called accountability.

Neil Maghami

Neil Maghami is a freelance writer and frequent contributor to Capital Research Center publications.

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Capital Research Center (CRC) was established in 1984 to promote a better understanding of charity and philanthropy. We support the principles of individual liberty, a free market economy and limited constitutional government: These are the cornerstones of American society.